Credit markets update Q3 2020

After a sharp contraction in second quarter new issue loan volume, economic activity rebounded in the third quarter, resulting in higher loan volume as borrowers opportunistically tapped the debt market

• New issue loan volume rebounded slightly from $81 billion in Q2-2020 to $85 billion in Q3-2020, driven by stabilizing economic conditions and increasing investor demand for yield
• Total issuance, however, remains well below normal levels due to lower loan volume supporting M&A activity. However, September M&A loan volume made a comeback and accounted for 56% of volume in the third quarter
• As acquisition-related financing has declined, opportunistic  loan issuance, including refinancing and dividend recaps, has taken up some of the slack
• Loan market distress remains high with the number of  issuers in default rising to 41 at the end of September 2020 from 6 a year ago

Dividend or Stock Repurchase Loan Volume- Quarterly ($bn)

The high-yield market continues to witness strong volume as Federal Reserve policies support credit markets in the wake of the coronavirus pandemic

• Federal Reserve policy has improved market conditions for borrowers to lengthen their debt-maturity profiles at historically low interest rates
• As a result, high-yield issuance year-to-date increased 72.1% to $339 billion from $197 billion for the same  period last year. Full year issuance is on track to break  2012’s high of $345 billion

Private debt fundraising—in terms of both capital raised and number of funds—is on pace for the lowest levels of the last half decade, totaling $47.8 billion across 53 vehicles in the first half of 2020

• However, there has been ample capital raised by credit funds in the past few years, and there is a significant amount of dry powder on the sidelines
• There is approximately $260 billion of dry powder, of which approximately 75% was raised in the past 3 years
  
  

Source: Standard & Poor | Leveraged Commentary & Data; Pitchbook